"No Highlights" but Steady as a Rock – A Casual Chat About Microsoft's Earnings Report

$Microsoft(MSFT.US) earnings reports are never exciting: you could say they're dull, or you could say they're rock-solid—it's the same thing. They rarely disappoint by falling short of expectations, nor do they suddenly hype up some grand vision. This quarter's characteristic is that every business segment performed exactly as Wall Street expected—except they didn't.

But the biggest winner this earnings season isn't Microsoft, nor is it Google with its dividend-fueled stock surge—it's $NVIDIA(NVDA.US).

1. AI-Driven. Today's Reuters headline directly labeled Microsoft as a top Wall Street target powered by AI. Cloud business performance completely smashed expectations, both in revenue and profits—all squarely driven by AI.

2. The PC Surprise. IDC's early-month report showed the PC business ended two straight years of decline in Q1 2024, returning to year-on-year growth. Though China, the global desktop stronghold, remains hampered by deflation and could hinder further growth. But how much does China's desktop market really affect Microsoft's Windows sales? Windows sales grew 17.5% YoY, beating expectations by 5%, while gaming revenue overshot forecasts by 9%. One regret: no specific Copilot revenue figures in this report.

3. The Real Winner. Another bombshell: Microsoft's AI spending also outpaced analyst forecasts. Quarterly AI investments rose 21.7% sequentially, nearly $1B above the expected $13.14B. Like Meta, AI spending is accelerating and will likely keep doing so—except Microsoft monetizes it directly through cloud. With secured midstream revenue and rising investments, who's laughing all the way to the bank? Obviously $NVIDIA(NVDA.US).

4. Can Microsoft Permanently Dethrone Apple as #1 by Market Cap? I don't know, but I'm not that optimistic. Soon we'll likely have three $3T companies: Microsoft, $Apple(AAPL.US), and NVDA. NVDA may briefly overtake Microsoft for the top spot, but not for long. Microsoft will keep growing steadily to outperform indices. Apple is just at a cyclical low—its terminal dominance in future AI-to-C adoption remains unchallenged. Forget shipment volumes; look at the global installed base of active iPhones. Beyond antitrust threats, no competitor can realistically challenge Apple worldwide. As the cycle nears its end, Apple will reclaim its throne.

In the blue ocean of AI revolution, timing doesn't matter. Microsoft wasn't early to the internet either—it once famously dismissed the web's potential. Great companies that master application scenarios can always leapfrog. Right, BYD?